Muted economic growth in the SEMED region

By Nibal Zgheib

Growth in the Southern and Eastern Mediterranean (SEMED) region is expected to remain muted in 2013 and to pick up only in 2014, according to the EBRD’s latest Regional Economic Prospects report, published today.

Economic growth has generally weakened as countries face challenging external conditions. In Egypt and Tunisia, economic performance is expected to be affected by domestic and political uncertainty. In Jordan and Morocco, the external environment will be a key factor in economic recovery.

IMF programmes in Jordan, Morocco and Tunisia continue to provide buffers against any further deterioration of external conditions, while bilateral support from Gulf Cooperation Council countries and the U.S. continues to provide vital financing to the most affected countries.

According to the EBRD report, all the SEMED countries (Egypt, Jordan, Morocco and Tunisia) have increased their subsidies and social benefits, which have led to a worsening of their fiscal deficits.

Ensuring fiscal and external sustainability remains a key challenge to restoring macroeconomic stability, but some countries have been facing difficulties in implementing their economic reform programmes, with politically sensitive reforms repeatedly postponed.

Business activity in Egypt has weakened considerably due to the political unrest and the curfew.

Egypt’s economy is expected to grow by 1.9 per cent in 2013 and by 3.2 per cent in 2014 with downside risks linked to heightened political uncertainty outnumbering upside risks.

In the meantime, aid inflows will temporarily support the economy, but they are no substitute for the reforms needed to address the unresolved fiscal and external pressures.

Jordan’s economy has been weakened by regional turmoil and growth of just 3 per cent is expected 2013, well below the average of 6 per cent over the last decade.

Growth in Morocco is expected to accelerate to about 4.8 per cent in 2013 as a result of an exceptionally strong harvest but it is expected to slow to 4.0 per cent in 2014 as agriculture growth normalizes.

The agricultural sector contributed significantly to the overall growth of the Moroccan economy; however growth in non-agricultural production slowed to 1.9 per cent in the second quarter of 2013 compared to 4.5 per cent in 2012.

Political and security turmoil has affected Tunisia’s economic performance and is likely to be a drag on economic growth in the third and fourth quarters of this year. Growth is expected to slow to 3.2 per cent in 2013 from 3.7 per cent in 2012 and the EBRD has cut its forecast for growth in 2014 to 4.0 per cent from the 4.3 per cent seen in May.

Read the full Regional Economic Prospects - November 2013 (892KB - PDF)

Download growth in real GDP data (5KB - CSV)